Lupe Aragon of Denver plays at the Isle of Capri in Black Hawk. On a recent weekday, gamblers said the casino smoking ban and high gas prices have cut into their trips to Black Hawk, by far the state's dominant gambling destination. <!--IPTC: (EL) CASINO_KSO_6_3_08057 - The casino industry was hit by the smoking ban, and now the economic downturn and high gas prices may be contributing to the worst downturn ever in the state's casino industry. Colorado casino revenues are down nearly 11 percent through the first four months of 2008, the second worst among states with commercial casinos. Gamblers spend take Tuesday afternoon to play at the Isle of Capri Casino and Hotel in Black Hawk. Lupe Aragon from Denver tries her luck at the Double Diamond reel machine. Kathryn Scott Osler, The Denver Post-->

Julie Romero smokes a cigarette on one of the four patios outside the Isle of Capri. "I used to come up here once every week. Now it's once every three months or so," she said. <!--IPTC: (EL) CASINO_KSO_6_3_08028 - The casino industry was hit by the smoking ban, and now the economic downturn and high gas prices may be contributing to the worst downturn ever in the state's casino industry. Colorado casino revenues are down nearly 11 percent through the first four months of 2008, the second worst among states with commercial casinos. Gamblers spend take Tuesday afternoon to play at the Isle of Capri Casino and Hotel in Black Hawk. Julie Romero of Denver takes time for a cigarette in on of the outdoor smoking rooms that the casino has added. The rooms are equipped with televisions and heating units. Kathryn Scott Osler, The Denver Post-->

Colorado’s mountain casinos are mired in their worst downturn ever, walloped by a smoking ban, high gas prices and a tightening economy that has cut into discretionary spending.

While other states with commercial casinos, such as Nevada and New Jersey, are also struggling, Colorado’s 10.7 percent revenue drop during the first four months of 2008 is the second-largest in the nation, according to an analysis by The Denver Post.

“We might’ve had a few blips before, but nothing like this,” said Marc Murphy, co-general manager of Bronco Billy’s Casino in Cripple Creek.

The biggest four-month drop for Colorado previously was in 2003 when revenue fell 5.5 percent from February to May, a result of bad weather — the March 2003 blizzard crippled businesses statewide — and the lingering recession.

Murphy said he believes 75 percent of the current downturn is attributable to the statewide smoking ban that extended to casinos Jan. 1. Illinois, which also implemented a casino smoking ban in January, is the only state to suffer a bigger decline in revenue this year.

Stephanie Steinberg, a force behind legislation that extended the Colorado smoking ban to casinos, said the recession has had a bigger impact on revenue. She pointed to the fact that Las Vegas’ gaming revenues have taken a hit even though casinos there allow smoking.

Atlantic City, N.J., casinos are slated to go smoke-free in October, and several other states are considering casino smoking bans.

Industry consultant Bill Palermo said the smoking ban’s effect on Colorado casinos will probably be short- lived as smokers eventually return because of limited nearby competition.

Delaware, which doesn’t have commercial casinos but features “racinos” — racetracks with slot machines — recovered from a revenue drop within a year after a smoking ban went into effect in 2003, Palermo said.

Similar declines and rebounds also occurred in international jurisdictions, such as New Zealand and Australia, that instituted smoking bans at gambling venues, according to a study by Bill Eadington, an economics professor at the University of Nevada at Reno.

Most observers say it’s virtually impossible to quantify the ban’s impact on Colorado casinos because other factors such as surging gas prices and the economic downturn also come into play. Colorado has three fewer casinos operating this year, since four have shut down, while a new one recently opened in Cripple Creek.

“The perfect storm”

“The industry is experiencing its version of the perfect storm,” said Don Burmania, a spokesman for the Colorado Division of Gaming. “How much each factor has contributed to the decline is difficult, if not impossible, to quantify.”

What can be quantified is the 11.5 percent decline in gaming tax revenue so far this year. That’s $4.6 million less the state has collected from the industry compared with a year ago, money earmarked for the Colorado general fund, historic preservation, and the local gambling towns and counties.

Tax revenue will probably take another hit in July when a new tax structure goes into effect.

Regulators last month approved a new tax rate that will lower taxes on small to medium-sized casinos. The Gaming Division estimates that 18 of the state’s 41 casinos will receive a tax break under the new rates.

The industry had asked the commission for a rate that would have lowered taxes on larger casinos as well.

Beyond lower tax revenue, the downturn has forced operators to trim staffing levels. Murphy said he has cut his service staff by about a dozen positions through attrition since January.

Last week, in an effort to turn the tide, he allowed smoking at Bronco Billy’s, the second casino in the state to take advantage of the cigar-bar exemption.

“We knew as of Jan. 1 of this year that we qualified (for the exemption) because we have over $50,000 in tobacco sales,” Murphy said. “But we chose to wait through the first quarter because the proponents of the smoking ban said that the revenue would not drop, but it has dropped significantly.”

The Isle of Capri, the state’s largest operator, with 2,200 slot machines at two casinos in Black Hawk, has also cut its workforce after spending $1.4 million to build four patios for smokers.

“We just haven’t filled open positions,” said John Bohannon, the Isle’s general manager. “You have to re-evaluate all aspects of your operation because the market dynamics have changed.”

On a recent weekday, gamblers said the smoking ban and high gas prices have cut into their trips to Black Hawk, by far the state’s dominant gambling destination.

“I used to come up here once every week. Now it’s once every three months or so,” said Julie Romero, 60, during a smoke break outside the Isle. “I just like to smoke while I play the machines.”

Visits dropping

Nearby, Golden resident Jane Painter said, between puffs, that she cut her trips from twice a week to once every couple of weeks because of the smoking ban.

“It’s not so much fun anymore,” said Painter, 68.

Inside the casino, Denver resident Paul Williams, 48, said his trips have dropped from twice a week to three times a month.

High gas prices may hurt Colorado more than other states because its casinos are tucked in the mountains in the historic towns of Black Hawk, Central City and Cripple Creek.

Despite struggles in Colorado and at the country’s premier gambling destinations in Las Vegas and Atlantic City, several states posted increases in revenue during the first four months.

States such as Michigan and Missouri benefited from new casino openings, said Palermo, the California-based industry consultant. Iowa was helped by the Illinois smoking ban, which pushed some to cross the state border to gamble, he said.

South Dakota saw an 8 percent increase in revenue at its casinos in Deadwood. The Deadwood Chamber of Commerce & Visitors Bureau spends more marketing dollars in Colorado than it does anywhere else, including South Dakota, said executive director George Milos. Deadwood is about a six-hour drive from metro Denver.

“Colorado is the No. 1 focus for us,” Milos said.

Though Colorado’s casino revenues are down, lottery sales in the state haven’t been hit. Through April, lottery sales, which include scratch games and Lotto and Powerball tickets, were up 9.8 percent from a year ago.

An industry ballot initiative that could lead to higher bet limits, 24-hour operations and new casino games may gain more support because of the casinos’ struggles. Colorado casinos currently are restricted to $5 bet limits and must close at 2 a.m.

“I would hope that it would light a fire under everybody to try to look at an opportunity to further penetrate the available market for those casinos, and raising the wager limit would definitely make a big difference,” Palermo said.

He said raising limits could help boost revenue by $200 million a year. Colorado casinos generated $816 million in revenue in 2007.